The simplest way of calculating your cash flow is to deduct your expenses from your income. The formula itself is rather simple and tells you that you can increase your disposable cash by either increasing your income or reducing your expenses. Both are valid ways, but often the best results are achieved by combining both approaches and often the only way to avoid living paycheck to paycheck or even worse, going into debt. The same rules apply in business as well.
Long-term, leasing if more expensive than buying. So why all experts advise startups to lease then? Because of the financial flow. By leasing the equipment you need, you are actually buying it with incremental payments. This essentially creates a payment plan, allowing you to skip big purchases right off the bat when you need the cash the most. Of course, if you are flush with money, you can afford to buy everything you need and pay a full retail price at once. Then again, if you are in that situation, you wouldn’t be reading articles about increasing cash flow.
Quick payments are a great way of bolstering your cash flow and one way of getting them is to offer discounted prices, especially on larger orders. There will be some of your customers who simply can’t afford to shell out that much cash in advance, but some of them will jump at the opportunity to save some money. If you can reduce the payment time from the usual 30 days to just 10 by offering a 2% discount for early payment, you should do it. Even at the larger discount, the exchange is still favorable, especially if you are strapped for cash.
The least popular way of increasing your cash flow is by cutting expenses, either operational or by firing people. Unfortunately, sometimes it is the only way of moving forward. If you are forced to do it, think carefully and create a plan before committing to it. These changes will shake your company to the core and shouldn’t be taken lightly.
Equipment maintenance isn’t something startups usually bother with, on the account that they are usually getting brand new stuff that needs little or no intervention. As time goes by and wear and tear kicks in, all of a sudden everything starts breaking down, causing massive downtime and delays. The best way to avoid this is by using preventive maintenance. Eventually, a part or a whole machine will need replacing, but by doing proper maintaining, this can be delayed significantly.
Not a very popular suggestion, but often you can find used equipment in excellent condition for a fraction of the price of a new one. This can be demanding on your time, as you have to sort through piles of junk to find one decent piece, but you can save thousands of dollars on just one purchase. Start with your area looking for local auctions and advertisements. Every once and a while, somebody will go out of business and this is a perfect opportunity to get your hands on professional equipment for little money. Make sure to bring someone who knows how to assess the condition, if you are unsure what to look for.
In the short term, expanding set you back significantly. You will have to expand production or hire more people to provide services, invest in a marketing campaign and gazillion other smaller things that will need money. In the long term, this is perhaps the best way to increase your cash flow. Not only will this increase your income, but it will also open up new possibilities as well.
A small percentage of your monthly income should be devoted to investments. This will ensure your long-term cash flow by providing you with dividends and interests. To be a successful investor, you need to educate yourself first and getting to know all the important trading terminology is just the first step. Learn the difference between stock, bonds, ETF’s, mutual funds and index funds, and see which one of these can benefit you the most. Over time, your portfolio will yield different returns and you should be ready to swap investments as the opportunity arises.
Hold a brainstorming session with your team to come up with a product or a service that you can offer to your customers. It may sound farfetched, but in reality, it is surprising how often good ideas can spring up when you least expect them. It doesn’t even have to be in line with your core business. Perhaps there is some space you aren’t currently using that can be rented?
Finally, if you are left with no other option, taking out a loan until you can recover may be the only solution, however unpopular it is. If you have reasonable expectations that your income will improve in the future and that you are just missing one vital part, like a piece of crucial machinery, taking out a commercial loan doesn’t have to be the end of the world. After all, take a look at the United States government, in debt for over $20 trillion. A few thousand dollars are almost insignificant in comparison. Of course, it is very important to have a clear idea of why you need the loan and the discipline to spend it on that exact purpose. People often make mistakes of diverting some newly-found funds to other things and neglecting the purpose of the loan. Not only will this get you in trouble with your lender, but it will also jeopardize the whole idea.
The cash is the king and whoever says other ways is either lying or is delusional. It is no wonder companies like Apple keep hundreds of billions stashed in offshore accounts, just waiting for an opportunity to present itself. However, getting to that level demands a lot of work and the first step is creating a positive financial flow. Only then can you think about creating an emergency fund for unexpected opportunities.